What Is a Credit Score?

A credit score is a three-digit number that is assigned to you based on your credit report. In Canada, credit scores range from 300 to 900.

Credit scores are used by lenders to determine how you manage your credit and how risky it might be to lend you money. Credit scores are fluid and change over time as your credit report — a summary of your credit history — is updated to reflect your financial habits.

Who provides credit scores in Canada?

Your credit score is calculated by two main credit bureaus in Canada: Equifax and TransUnion, using proprietary algorithms as well as scoring models that may be provided by companies like the Fair Issac Corporation. Both bureaus, or credit reporting agencies, are responsible for collecting, storing, and sharing information about your credit and how you use it, but only within Canada. So if you built a credit history in another country before moving to Canada, TransUnion and Equifax won’t have access to it.

Neither bureau is necessarily better than the other, and you may notice that you have a different credit score from each credit bureau. This is because the reporting sources considered by each credit bureau may differ, but the numbers are typically close enough to fall into the same score category, such as “good.”

In Canada, you will also find other companies that offer your credit score, such as Borrowell or Clearscore. These are considered credit monitoring businesses and they work with Equifax and TransUnion.

How credit scores are rated in Canada

Credit scores ratings can be as low as 300 or as high as 900. The scores fall into categories, also known as ranges or ratings. Here are the ratings breakdowns from Canada’s credit bureaus as well as FICO:

	Equifax	TransUnion	FICO
Poor	300-559	300-692	Below 579
Fair	560-659	693-742	580-669
Good	660-724	743 – 789	670-739
Very Good	725 to 759	790-832	740-799
Excellent	760 and up	833 and up	Above 800

Excellent: Individuals with excellent credit are considered to be the lowest risk borrowers and will have the easiest time being approved for loans and lines of credit.

Very Good: People with these very good credit have demonstrated a strong use of credit and will have an easier time securing a loan than those with lower credit scores.

Good: Individuals with good credit scores are considered acceptable or lower-risk borrowers.

Fair: People with scores in this range are considered to be less reliable or “subprime” borrowers, perhaps because they have very little borrowing history. Some lenders will see them as a risk, and they may have trouble qualifying for new credit.

Poor: Individuals with poor or bad credit scores are considered the riskiest and are unlikely to be approved for credit by traditional lenders. They should prioritize building their credit so that they can be approved in the future.

What does your credit score mean?

Your credit score indicates your level of risk for a lender. Higher credit scores mean you have a strong history of paying back your debts on time, so you may represent less risk to a lender.

Low credit scores can happen for a number of reasons. People with lower credit scores may have struggled to pay back their debts on time, or may not have much credit history, both situations that make lenders view them as potentially riskier borrowers.

But credit scores don’t tell the whole story—someone might have a low score because they struggled to pay the bills during a period of illness or job loss, or because they depended on a partner, or because they’re new to Canada.

Having a lower credit score does not automatically mean you will be denied a loan or credit card. It’s still possible to be approved for a loan with poor credit, but you may have to go with a secured loan, where you provide some sort of collateral that the lender can seize if you don’t pay back the loan. You may also be approved with a higher interest rate, which is more beneficial to the lender, but means the loan will cost you more over time. Both of these scenarios mean that if you have a low credit score, it’s in your best interest to work on improving it so you can be approved for a loan with better rates and terms.

Factors that impact your credit score include:

On-time payments of bills and other credit.
How many types of credit you have (a mix is better than several of one type).
How many new credit accounts you have opened recently (too many new accounts at once could indicate financial trouble).
The age of your credit accounts (a longer history shows responsible credit management).
Your debt balance compared to your credit limit, also known as credit utilization ratio.
Any foreclosures, bankruptcies or delinquencies on file.

Why does your credit score matter?

Your credit score is a key factor that lenders will look at when considering whether or not to approve you for certain financial products, such as credit cards, personal loans, mortgages and more. Your credit score also affects how much interest lenders will charge you for these loans. Individuals with higher credit scores are more likely to get lower interest rates than those with poor credit scores.

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